Commercial Finance Association Files an Amicus Brief on Appeal to the Ninth Circuit
February 15, 2013
The Commercial Finance Association, represented by its co-general counsel, Otterbourg and Goldberg Kohn Ltd. submitted an amicus (friend of the court) brief to the United States Court of Appeals for the Ninth Circuit in In re Loop 76, LLC, Case No. 12-60021.
The case involves the right of an undersecured lender to weigh its deficiency claim with other general unsecured claims for purposes of voting on a proposed Chapter 11 plan of reorganization. The lower courts held that an undersecured lender’s deficiency claim was required, as a matter of law, to be classified separately from other general unsecured claims for purposes of plan voting simply because the deficiency claim was supported by the guarantee of a non-debtor third party.
If, contrary to these rulings, the secured lender’s deficiency claim had been included in the same class as all other unsecured creditors - a result mandated by the holdings of most other courts to have addressed this issue - the secured lender, due to the size of its deficiency claim relative to the size of all other unsecured claims, would have had the ability to block acceptance of the debtor’s Chapter 11 plan of reorganization by the class of general unsecured creditors. Under the lower court decisions, the mere fact that a lender obtains a third party guarantee increases the lender’s risk of being crammed down in a future Chapter 11 bankruptcy case of its borrower.
As the rulings provide a significant disincentive for lenders to obtain third-party guarantees, and in addition are inconsistent with the holdings of most every other court to have addressed the issue, CFA argued in the brief that the rulings, unless reversed on appeal, will adversely impact the cost and availability of credit for borrowers. The case is In re Loop 76, LLC, Case No. 12-60021, which appeals a BAP decision, In re Loop, LLC, 465 B.R. 525 (9th Cir. BAP 2012).